On 26 January 2015, the United States’ Federal Reserve System released ‘Strategies for Improving the U.S. Payment System’ (see ‘related links’ below), a paper highlighting a multi-faceted plan to enhance the speed, safety and efficiency of the U.S. payment system. The paper communicates desired outcomes for the payment system and outlines the strategies and tactics the Federal Reserve will pursue, in collaboration with stakeholders, to help achieve the outcomes.

According to Jerome H. Powell, Federal Reserve Board Governor and co-chair of the Federal Reserve’s Payments Improvement Oversight Committee: “A more efficient and faster payment system contributes to public confidence and economic growth. We look forward to working with payment stakeholders to realise this vision.”

The Federal Reserve believes that the U.S. payment system is at a critical juncture in its evolution. Technology is rapidly changing many elements that support the payment process. High-speed data networks are becoming ubiquitous, computing devices are becoming more sophisticated and mobile, and information is increasingly processed in real time. Meanwhile, payment security and the protection of sensitive data, which are foundational to public confidence in any payment system, are challenged by dynamic, persistent and rapidly escalating threats. Finally, an increasing number of U.S. citizens and businesses routinely transfer value across borders and demand better payment options to swiftly and efficiently do so.

Driven by this assessment, the Federal Reserve began its current payment system improvement initiative in 2013 with an 18-month research program to identify key gaps and opportunities in the payment landscape and gather industry and end-user perspectives on needs and priorities. ‘Strategies for Improving the U.S. Payment System’ details the conclusions of those efforts and communicates a multi-faceted plan for collaborating with payment stakeholders - including large and small businesses, emerging payments firms, card networks, payment processors and financial institutions - to enhance the speed, safety and efficiency of the U.S. payment system.

Esther L. George, President of the Federal Reserve Bank of Kansas City and Executive Sponsor of the initiative, said: “This plan reflects the contributions and commitment of thousands of payment system participants who have shared their expertise and perspectives. Consequently, we believe the strategies and tactics in the plan have broad support and strong prospects for success.”

Desired outcomes

Following extensive public input, the Federal Reserve outlined five desired outcomes to pursue in collaboration with industry stakeholders.

Speed: a ubiquitous, safe, faster electronic solution(s) for making a broad variety of business and personal payments, supported by a flexible and cost-effective means for payment clearing and settlement groups to settle their positions rapidly and with finality.

Security: U.S. payment system security that remains very strong, with public confidence that remains high, and protections and incident response that keeps pace with the rapidly evolving and expanding threat environment.

Efficiency: greater proportion of payments originated and received electronically to reduce the average end-to-end (societal) costs of payment transactions and enable innovative payment services that deliver improved value to consumers and businesses.

International: better choices for U.S. consumers and businesses to send and receive convenient, cost-effective and timely cross-border payments.

Collaboration: needed payment system improvements are collectively identified and embraced by a broad array of payment participants, with material progress in implementing them.

Strategies

The paper highlights the strategies and tactics the Federal Reserve will pursue, in collaboration with stakeholders, to help achieve these outcomes. The paper outlines the Federal Reserve’s intent to establish a task force to identify effective approaches for implementing safe, ubiquitous, faster payment capabilities. The paper also calls for a task force to advise the Federal Reserve on reducing payment fraud and advancing the safety, security and resiliency of the payment system.

Details for the Faster Payments Task Force and the Secure Payments Task Force were released on 16 March 2015, with participation open to all interested stakeholders with relevant payment knowledge and experience who can commit the required time and resources to these key initiatives.

Additionally, the Federal Reserve will pursue efforts to enhance payment system efficiency through work on standards, directories and business-to-business payment improvements, alongside efforts to enhance Fed-provided services for same-day Automated Clearing House (ACH), risk management and settlement. Efforts to enhance payment system efficiency will include tactics in support of cross-border payment improvements. This aligns with major markets around the world who have announced plans to adopt ISO 20022 payment message standards in response to regulatory mandates or in conjunction with the development of new systems and/or technology upgrades. Given this global development, the Federal Reserve formed a Stakeholder Group to assess the desirability of U.S. adoption of ISO 20022 payment message standards. The Stakeholder Group is working to develop an education and implementation strategy for ISO 20022 adoption. Preliminary results from the Stakeholder Group include that adoption to ISO 20022 is necessary (1) for U.S. corporates engaged in global trade, their financial institutions, and their domestic wire and ACH payment networks to remain interoperable/competitive with other markets; and (2) for the U.S. dollar to maintain its attractiveness as a global currency.

Stakeholder collaboration

The Federal Reserve sees collectively designed solutions as foundational to achieving the desired outcomes and recognises that this will require significant stakeholder collaboration and commitment. Extensive stakeholder input drove development of the desired outcomes and strategies outlined in the ‘Strategies for Improving the U.S. Payment System’ paper, and as demonstrated by its desired outcome and strategy focused on collaboration, stakeholder engagement will continue to be the initiative’s operating philosophy.

In addition to establishing the Faster Payments Task Force and the Secure Payments Task Force, the Federal Reserve will continue to seek input and communicate progress on initiatives from all payment participants through live and virtual forums, surveys, industry-sponsored and Federal Reserve-sponsored meetings and events, and online feedback mechanisms. Individuals interested in staying abreast of the efforts and providing input are invited to join the FedPayments Improvement Community (for details, refer to the website included in the ‘related links’ below).

Connie Theien is vice president of payments industry relations for the Federal Reserve System, with responsibility for coordinating engagement with stakeholders to advance the Federal Reserve’s payments improvement initiatives.

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In this article

On 26 January 2015, the United States’ Federal Reserve System released ‘Strategies for Improving the U.S. Payment System’, a paper highlighting a multi-faceted plan to enhance the speed, safety and efficiency of the U.S. payment system. In this article, Connie Theien, vice president of payments industry relations for the Federal Reserve System, introduces the paper’s contents. It communicates desired outcomes for the payment system and outlines the strategies and tactics the Federal Reserve will pursue, in collaboration with stakeholders, to help achieve the outcomes. The Federal Reserve began its current payment system improvement initiative in 2013 with an 18-month research program to identify key gaps and opportunities in the payment landscape and gather industry and end-user perspectives on needs and priorities. ‘Strategies for Improving the U.S. Payment System’ details the conclusions of those efforts and communicates a plan for collaborating with payment stakeholders – including large and small businesses, emerging payments firms, payment networks, payment processors and financial institutions – to enhance the speed, safety and efficiency of the U.S. payment system.

The views expressed in this article are solely those of the author and should not be attributed to the European Payments Council.

Key Information in this Article

The Federal Reserve System released the ‘Strategies for Improving the U.S. Payment System’ paper on 26 January 2015 highlighting a multi-faceted plan to enhance the end-to-end speed, safety and efficiency of the U.S. payment system. This article will highlight the following components of the paper:

Desired goals for an improved U.S. payment system, reflecting public input and the results of several studies sponsored to support this initiative.

Multi-year strategies the Federal Reserve will engage with stakeholders to pursue as both leader/catalyst and payment system service provider to help achieve desired outcomes.

Tactics to solicit broad stakeholder engagement and active participation in the implementation of these strategies.

The ‘Strategies for Improving the U.S. Payment System' paper is included in the ‘related links’ at the end of this article.

Connie Theien

Vice president of payments industry relations for the Federal Reserve System